Overconfidence and Corporate Tax Policy
42 Pages Posted: 14 Mar 2014 Last revised: 3 Feb 2018
Date Written: January 29, 2018
Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more tax. We find robust evidence of a positive relation between proxies for corporate tax avoidance and CEO overconfidence. Because our empirical tests use a panel of firm-years with exogenous CEO departures and include controls for stationary firm effects as well as observable firm characteristics, we are better able to isolate the role of an idiosyncratic personality trait (i.e., overconfidence) on corporate tax outcomes, thus adding to the literatures on overconfidence, managerial effects, and tax avoidance.
Keywords: Overconfidence; tax avoidance; manager effects
JEL Classification: D80, M40, H25
Suggested Citation: Suggested Citation